Good or Bad? An Enlightening Review

Shriram Life Immediate Annuity Plus is a Non-Linked Non-Participating Immediate Annuity Plan. It offers you a comprehensive range of annuity options along with flexibility, providing you an opportunity to always maintain your living standards.

• A single premium immediate annuity plan
• Offers 9 flexible annuity options to suit your needs
• Guaranteed annuity rates for life
• Return of purchase price in the event of terminal illness
• Choice between Single Life and Joint Life options

If you have any objections to the terms and conditions of your Shriram Life Immediate Annuity Plus Plan Policy, you may cancel the Policy within 30 days from the date of receipt of the policy document whether received electronically or otherwise.

The policy acquires surrender value immediately on payment of the purchase price. The surrender value payable under the Shriram Life Immediate Annuity Plus Plan policy is as below.

Year 1 to 3 85% of purchase price

Year 4 to 6 90% of purchase price

Year 7 and above 92.5% of purchase price

Other Options: No surrender value is payable

• Annuity payments are fully taxable.
• The selected annuity option cannot be modified once the policy begins.
• The annuity does not account for inflation.
• The policy cannot be surrendered (except under specific options).
• Loans are not available under this plan.

The Shriram Life Immediate Annuity Plus Plan offers a variety of annuity options, including regular income, increasing annuity, guaranteed annuity for a specified period, or regular income with the return of the purchase price.

While you can select an option based on your cash flow needs, focusing solely on cash flow patterns isn’t enough to choose the best plan.

To make an informed decision, we calculate the Internal Rate of Return (IRR) using the figures from the Shriram Life Immediate Annuity Plus Plan policy brochure.

Let’s consider a 60-year-old male investing ₹10 Lakhs in the Shriram Life Immediate Annuity with a single premium payment.

Assuming a life expectancy of 85 years and selecting Option 2—Annuity for Life with the return of purchase price on death or terminal illness—the annual annuity is ₹63,530.

If the purchase price is returned at age 85, the IRR for this cash flow is 6.25% as per the Shriram Life Immediate Annuity Plus Plan maturity calculator.

This rate of return is lower than what any debt instrument offers, particularly for senior citizens. Additionally, the investment is locked in, with surrender options only available under specific variants and subject to the year of discontinuance.

Considering the rising cost of living, a fixed income may become insufficient over time, leading to potential financial challenges.

The combination of a lower return and restricted access to funds underscores a major drawback of the Shriram Life Immediate Annuity Plus Plan.

The Shriram Life Immediate Annuity Plus Plan falls short of delivering competitive investment returns.

For consistent cash flow, there are better alternatives available in the market that offer higher returns and greater liquidity. Let’s explore some fixed-income options:

Senior Citizen Savings Scheme (SCSS): Provides a return of 8.20% per annum, allowing retirees to invest their corpus and receive regular income.

Bank Fixed Deposits (FDs): Offer interest rates ranging from 7% to 8% per annum, with an additional 25 basis points for senior citizens. Interest can either be accumulated or received as regular payouts.

RBI Floating Rate Bonds: Currently yield 8.05% per annum, with interest paid semi-annually. Though these bonds have a seven-year lock-in, senior citizens can withdraw early with a penalty.

While these options deliver steady income, they do not account for inflation. To combat inflation and ensure your retirement corpus lasts, incorporating equity into your portfolio is essential.

By periodically rebalancing your portfolio, you can achieve inflation-adjusted income and grow your corpus over time.

Here’s an alternative strategy for the same retirement corpus of ₹10 Lakhs:

Allocate 60% (₹6 Lakhs) to equity for wealth creation and 40% (₹4 Lakhs) to debt for generating regular income. Assume equity returns of 12% and debt returns of 6%, with the debt portion replenished from equity every five years.

Begin with an annual withdrawal of ₹63,530 (matching the Shriram Life Immediate Annuity Plus Plan’s Annuity for Life with Return of Purchase Price).

Increase withdrawals by 6% every five years to adjust for inflation. Upon death, the purchase price is returned to the nominee, with withdrawals structured to match the plan.

Under this strategy, at age 85, your corpus grows to ₹17 Lakhs, far surpassing the ₹10 Lakhs return of purchase price offered by the Shriram Life Immediate Annuity Plus Plan.

By age 71, the equity portion can be fully shifted to debt for a more conservative approach, though this can be adjusted based on your risk tolerance. Even with a complete shift to debt, the corpus lasts beyond your lifetime.

In summary, this strategy provides inflation-adjusted income, full liquidity, and the flexibility to adapt to your financial goals—advantages that the Shriram Life Immediate Annuity Plus Plan does not offer.

A lump sum investment that provides regular income is an attractive feature of the Shriram Life Immediate Annuity Plus Plan, especially for senior citizens.

While the annuity may seem sufficient during the early years of retirement, it gradually loses value due to inflation, which erodes purchasing power over time.

Another key drawback is the lack of access to your funds due to the plan’s locking mechanism, which limits financial flexibility. IRR analysis further highlights that a fixed income, without inflation adjustments, may not be adequate to meet long-term retirement needs.

These limitations raise questions about the suitability of the Shriram Life Immediate Annuity Plus Plan for effectively managing a retirement corpus and it also has a high agent commission.

Retirement planning is a crucial part of financial planning, and a one-size-fits-all annuity or pension plan cannot address everyone’s unique requirements.

Instead of opting for annuity or pension plans, explore better alternatives that provide steady income, liquidity, and higher returns—features that the Shriram Life Immediate Annuity Plan lacks.

For inflation-adjusted income, incorporating equity into your portfolio is essential. This approach not only helps your retirement corpus outlast your lifetime but also ensures your financial stability in the face of rising costs.

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To create a strategy tailored to your goals and circumstances, it’s wise to seek guidance from a Certified Financial Planner.